There is no shortage of great personal financial advice. The problem is knowing if it applies to you or not.
“Personal finance is personal before it is financial,” Talaat McNeely told me during an interview earlier this year. McNeely is the co-founder of His and Her Money, which he runs with his wife, Ty. I have found this idea to be a useful way to think about your money and your life in general.
There is no single tip or financial hack that will instantly change your life. But some principles and concepts can put you on the path to achieving your goals. You’ll just need to figure out a way to apply it to your unique situation.
Here are the most impactful lessons I learned during my time as a personal financial reporter, and how I applied them to my life. These tools and concepts have helped my wife and I set aside more than $20,000 to pay off student loans (once interest resumes next year), build our own emergency fund, and feel less anxious about our financial future.
A good budget should manage not only your expenses but also your emotional relationship with money.
5 things I learned as a personal financial reporter
Since launching Next in the process of accomplishing this mission, we have learned a lot about ourselves.
Here are four personal financial concepts that my wife and I have incorporated into our daily approach to finances, as well as one strategy we plan to use when we are ready to buy a home.
1. Budgeting is more than just managing money
For years, my budget was a homemade spreadsheet that I updated sporadically in the hope of becoming a young Warren Buffet. It rarely worked as I wanted. In theory, my budget should have turned me into the ultimate saver. But what happened a lot was this: I’d update it about once a month only to find out I’d be overspending on eating out. It didn’t help me get nervous about the money.
One of the first stories I wrote for NextAdvisor was creating a budget, and that’s where I discovered Zero Budgeting (ZBB). Once my wife and I started using the zero budget method, not only did we start saving more but we also started to worry less about money. In my experience, a good budget should manage not only your expenses but also your emotional relationship with money.
With ZBB, a purpose is given for every dollar that comes in. We allocate funds to pay rent, mobile phone and other expenses. But we also set aside money for more than just our current bills. This strategy helped us pay off student loans sooner than we expected.
ZBB also helped us set up an emergency fund for the first time in my life. When the cat needed $2,000 emergency surgery last summer, we already had that money allotted. If we didn’t have an emergency fund, this windfall cost would have been a setback for other goals. Since this money has already been set aside, it has not negatively affected our other financial obligations.
We’ve been using the You Need a Budget (YNAB) app for about a year and a half, and we absolutely love it. This app has effectively converted our credit cards into debit cards, which is important because I am a travel credit card addict. When I enter a credit card purchase in the YNAB app, funds are instantly set aside to pay off that card. So even though I won’t actually pay the credit card bill for up to 30 days, Budget tells me the money is no longer available to spend.
How to find a budget strategy that works for you
If you want to try out the zero budget for yourself, I think YNAB is a great place to start. It is important to note that it is not free. But there are plenty of free or cheap ZBB templates available. And ZBB isn’t the only budget method that works. As you explore different ways to budget, focus on why you want to budget in the first place. A budget can help reduce financial stress, and bring you closer to your goals without turning you into an Ebenezer Scrooge.
2. Prioritize income over expenses
There are a limited number of Starbucks lattes you can cut out of your budget – but there are an unlimited number of ways to make money.
I’ve talked to people who have paid off their mortgage in less than six years and have overcome six figures of debt. One common thread from these success stories is that they find ways to make more money. They start side struggles, business, or find better paying jobs. Having a budget that works for you is still the first step. But if you do not have enough income after expenses, then saving for anything else will be difficult.
My wife and I are expecting our first child in 2022, and for us, it’s as important as ever to increase our family’s income. My wife is considering moving from freelance to full-time work, which will provide a more stable income. From there, we may explore other opportunities for freelance work or side work.
How do you increase your income?
Starting a side hustle might not be as difficult as you think. You likely already have interests and talents that you can use or develop to increase your income. One great piece of advice Mark Russell gave me was to repurpose skills from your current job into a side hustle. Russell is the creator of the Betterwallet Personal Finance account. He said in a previous story for Next
3. A negotiation can be as simple as asking
The idea of negotiation has always terrified me. My idea of a good negotiator has always been that of a former Marine or professional athlete, someone who is in control, confident, and accustomed to winning. In fact, negotiating is often as simple as asking for what you want. Sometimes crafting a good offer involves offering something of value in return.
I’ve never asked for much of anything, let alone a discount on my lodging costs. Recently, I was looking to move into a new apartment with a short-term lease of 3 months. I emailed my current property managers to ask about two basement units that I knew were vacant. I asked if either of the two units would be available for a short term lease and gave them valuable information, reminding them that the one apartment had been vacant for over a year. Then she offered to pay the three months up front if they were to reduce the rent.
Now I’m paying over $150 less a month and my landlord has $4,000 more than before I asked what I wanted.
How to negotiate frequently
Any negotiation is better than no negotiation. Find an approach that can help you relax and be more comfortable. Try making an indirect application and see if it is easier for you. Instead of talking and saying that you want a raise, ask your manager something along the lines of, “What have people in my position done in the past to help increase their salary?” At the very least, start the conversation. You will never get something if you don’t ask for it in the first place.
4. Be patient and persistent. Change takes time
Changing the path of your finances takes time.
It can be frustrating to read. Everywhere you look is headline after headline highlighting the youngest millionaire or person who went from insurmountable debt to financial freedom in less time than it took him to read his bestselling book.
Life is a marathon, but we only see the last few hundred meters of other people’s victories. Almost all financial accomplishments are preceded by a long period of learning and building momentum. Whether it’s learning to code before becoming a tech entrepreneur or saving up on a down payment on a home, meaningful changes take time.
If you can only take small steps, then just keep taking small steps. It can be hard to see how fast others are moving. What’s not clear is how much time it took to develop the speed you see. Understanding how much time it takes to make meaningful improvements is the basis for positive financial decisions.
How do you use time to your advantage?
The best way to have time at work is to start now. Start small, start slow, and start without being perfect. Then, your job is to continue what you started, no matter how slow, learning and making adjustments along the way.
5. Prospective Homeowners: Ask for a No-Cost Mortgage
While reporting on mortgages, the most overlooked strategy I’ve come across to reduce the cost of a mortgage is to ask for lender credits in exchange for a higher interest rate. In this case, the credits will be used to cover the loan fee portion of the closing costs. A no-cost mortgage means that you’ll pay much less out of pocket each time you buy or refinance a home.
Here’s why I plan to take out a no-cost loan:
- By reducing the initial cost, I will have more cash.
- What you spent on closing costs up front can be used to pay off your mortgage balance, invest in a retirement fund, or set aside for unplanned home repairs.
- If I transfer or refinance combined six times in the next 30 years, I will pay closing costs (3%-6% of the loan) six times. For me, getting a higher interest rate with a no-cost loan is cheaper because our future plans are not fixed.
When looking for lenders, ask if they have a no-cost loan option. Compare your options and see which one is more suitable for you. In my experience, zero-cost mortgages are not very popular or widely advertised. Also, a no-cost mortgage is different from a mortgage without a closing cost. A zero-closing-cost mortgage is when the closing costs are transferred to the total loan balance.
How to choose the right mortgage for you
Anytime you take out a loan to buy a home, you’ll want to make sure you understand all of your options. Ask lots of questions and work with a professional who will help you understand your options, rather than just someone giving you “the answer.” In my experience, most borrowers are overly concerned with the mortgage rate and overlook closing costs. It can be easy to miss interest and closing costs because they may be added to your loan balance, but you still pay even if you don’t pay out of pocket at closing.
The above practices have given me the patience I need to establish lifelong financial habits. They worked for me. But that doesn’t mean you have to take the same approach. If nothing else, use these concepts to start thinking about how you might approach your money differently or to start asking questions you haven’t thought of before. For more information, see this resource library on the NextAdvisor savings page.